According to an exclusive interview with CNBC on Monday, Chinese electric vehicle (EV) manufacturer Xpeng expects that cost-cutting initiatives and its partnership with Volkswagen would help decrease the company’s losses.
With a net loss of 2.8 billion yuan on Friday, Xpeng recorded its highest quarterly loss since going public in the US in August 2020, exceeding the loss of 2.13 billion yuan predicted by a Refinitiv consensus estimate. The price of Xpeng’s U.S.-listed shares fell by 4.28% on Friday as a result of this announcement. However, Xpeng’s Hong Kong-listed shares were trading more than 2% higher on Monday afternoon.
Deliveries from Xpeng reached 23,205 in the second quarter, a 32.58% decline from the same time last year.
The company is putting cost-cutting measures into place across its operations, according to CEO He Xiaopeng, who also indicated on Friday that by 2024, gross margins should have greatly improved.
According to a report from April, Xpeng planned to lower manufacturing costs, including lowering the price of intelligent driving features by 50% by the end of 2024.
On Monday, Xpeng’s Vice Chairman and Co-President, Brian Gu, disclosed that the business has undergone a significant corporate reorganization and expense restructuring. The business’s growth momentum has been regained as a result of these modifications.
Since its share price fell by almost 80% in 2022, Xpeng has been attempting to revive its operations this year. The business has to contend with a difficult macroeconomic climate in China as well as increased competition, including a pricing war between Chinese rivals and Tesla.
Gu pointed out that even while there is still a high demand for EVs in China, industry competitors have adopted aggressive pricing methods as a result of increased rivalry, particularly in the first half of the year.
Xpeng is concentrating on cost reduction initiatives with aims to reduce total vehicle bill of materials (BOM) expenses by up to 25% in the upcoming year in order to increase profitability. All the parts needed to produce a vehicle are listed in BOMs.
According to Bank of America Securities, the relationship between Xpeng and Volkswagen will improve the company’s financial situation and supply chain management. As a result, they raised their target share price for Xpeng from $16.30 to $22 and changed its rating from “neutral” to “buy”.
Volkswagen revealed in July that it had invested $700 million in Xpeng, acquiring a 4.99% interest in the business. The co-development of two new electric vehicles for the Chinese market as part of this strategic alliance will use cutting-edge driver assistance technology from Xpeng.
China has developed into a battleground for international and domestic manufacturers looking to compete with cutting-edge technology as the world’s largest EV market. According to Bank of America Securities, China will control 40% to 45% of the global EV market by 2025.
Next year, Xpeng also intends to introduce updated iterations of its current products, with prospects for increased profitability and gross margins. At the conclusion of the second quarter, the G6 Ultra Smart Coupe SUV made its debut, which is anticipated to boost margins.
Overall, Xpeng anticipates that in the upcoming years, its growth and profitability will be further fueled by an improved product mix, better cost management, and a higher gross profit margin.